Tax Lawyer's Blog

Tim Worstall of Adam Smith.Org has produced a chart that shows that the bottom 5% of income earners in America have a higher income than the top 5% of Indians and proving that,

Capitalism red in tooth and claw, an entire nation quite uncaring about those left behind, produces a higher standard of living for the losers of the rat race than 50 years of socialism (and 20 years of playing catch up) does for the winners.

Clearly, those who concern themselves with the incomes of the poor should be arguing for more reddish toothiness in our capitalism then.

Here’s the chart and Worstall’s explanation of it:

An extraordinarily useful and mind boggling chart for those worried about inequality.

 A little background.

Branko Milanovic, from whom the data comes, is a researcher into inequality. He tells us that there are three ways of measuring this globally. We could use the average income of each country and then compare these averages, this is Concept 1.

Not all that useful as we’re thus comparing the 400,000 people of Luxembourg as one unit with the 1.3 billion of India as one unit.

Concept 2 takes these averages and then weights them by population. Thus we transform the 50 ish units representing the 900 million of Africa into something we can compare to the 1.3 billion of India.

Concept 3 is much more difficult to calculate but is much more informative: treating the world as one unit and comparing incomes across the world.

Which is what leads to the remarkable, astounding even, result above. Using ventiles (i.e., 5% chunks of the population) and plotting what the actual living standards of each group is, in real terms, compared with the real terms living standards of others around the world. Yes, it’s adjusted for purchasing power (PPP) and so on. And what’s remarkable, astounding, about the result is that….

Yes, it really is saying that the bottom 5% in the USA have a higher income, a higher standard of living, than the top 5% of Indians.

Eat your hearts out wealth redistributionists and capitalism-haters.

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